Page 339 - DCOM201_ACCOUNTING_FOR_COMPANIES_I

Accounting for Companies-I

Notes These shall include sales or service charges to customers for the goods and/or services
provided during the period. This section shall include information about duties, taxes,
discounts, allowances and returns in order to determine net sales or net revenues.
2. Cost of sales/services: These are costs directly associated with generating revenues and
shall include (to be disclosed separately):

(a) Change in inventories – Opening (less closing) inventories of finished goods and
work-in-process;
(b) Cost of direct materials consumed arrived at by adding net purchases (purchases
less discounts, returns and allowances plus freight-in) to beginning inventory to
obtain direct materials available. From the cost of direct materials available, the
ending inventory is deducted;
(c) Other external charges (such as the hire of plant and machinery or the cost of casual
labour used in the productive process);
(d) Direct labour (ESOP and ESPP expenses to be disclosed separately);
(e) All direct production overheads;
(f) Depreciation and amortization that can reasonably be allocated to the production
function;
(g) Indirect overheads that can reasonably be allocated to the production function;
(h) Product development expenditure not qualifying for recognition as an intangible
asset and amortization of development expenditure recognized as an intangible
asset;

(i) Inventory write downs/reversals;
(j) All direct overheads in providing services;
(k) All allocable indirect overheads in providing services;
(l) Cost of goods traded-in arrived at by adding net purchases (purchases less discounts,
returns, and allowances plus freight-in) to beginning inventory to obtain the cost of
goods available for sale. From the cost of goods available for sale amount, the
ending inventory is deducted;
(m) Other cost of sales.
3. Operating expenses: Operating expenses are those that are incurred in order to generate
sales. Operating expenses shall be classified as:
(a) Selling and marketing expenses;
(b) Administrative expenses;

(c) Depreciation and amortization of assets;
(d) Foreign currency exchange gains/(losses), net.
(a) Selling and marketing expenses are those expenses that are directly related to the
company’s efforts to generate sales. These items shall include (to be disclosed
separately):
(i) Payroll costs of sales, marketing and distribution functions (ESOP and ESPP
expenses to be disclosed separately);
(ii) Advertising;

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